Recent amendments to Law on Movable Pledges in Commercial Transactions
The Law amending Certain Laws to Improve the Investment Environment 7099 (the Amendment Law) was published in the Official Gazette on 10 March 2018. In order to boost Turkey's investment environment, the Amendment Law has introduced notable changes to a number of different laws, including the Law on Movable Pledges in Commercial Transactions (the Movable Pledges Law). This update briefly examines the amendments to the Movable Pledges Law.
The amendments to the Movable Pledges Law include the following:
- Previously, it was mandatory in pledge agreements to state the pledged movable and its distinctive characteristics (eg, serial number, brand or year of production). Following the amendments, where a movable has no distinctive characteristics, this can be stated in the pledge agreement in general terms.
Movables that could be pledged in commercial transactions were previously listed in the Movable Pledges Law in accordance with the numerus clausus principle. Following the amendments, a new sentence stating that "any similar kind of movable assets and rights" has been added. As a result, the conclusive nature of the article has been changed. However, it is difficult to estimate to what extent and, arguably:
- the change will lead to ambiguity regarding the definition of 'similar'; and
- no movable will be outside the scope of the Movable Pledges Law.
- Any future interest income, insurance proceed or natural product from a pledged movable and its substitute assets will automatically be deemed to have been pledged together with the pledged movable itself.
- If a production process is pledged together with the movables utilised during said process, the receivables to be gained during and at the end of the process will automatically be deemed to have been pledged with the same ranking and ratio.
- Under the amendment, the good faith of a bona fide third party, which does not know or need to know that a movable has been pledged, is now protected. From a creditor perspective, legal protection is now questionable under the Movable Pledges Law. Therefore, creditors must be aware of and assess such risks and take additional measures if necessary.
- Previously, if a debtor defaulted, a creditor was entitled to certain execution options provided in the Movable Pledges Law and general execution and liquidation proceedings could be applied only when and if such options were sufficient for the collection of the receivable. Under the amendment, creditors are entitled to apply general provisions without having to apply special provisions under the Movable Pledges Law.
- The application period to release a pledge from the registry has been extended to 15 business days for Turkish creditors and 30 business days for foreign creditors. This was previously three business days without exception.
- The Civil Code's provisions concerning pledges on immovable assets will apply to matters for which there is no specific provision in the Movable Pledges Law instead of the code's provisions concerning pledges on movable assets.
This article aims to endow the reader with a general outline about its subject matter. Each individual case should be evaluated according to its circumstances.